The best Woodford Equity Income fund alternatives
Neil Woodford’s demise and the closure of Woodford Investment Management have put the spotlight on equity income funds which focus on companies that pay dividends to shareholders.
The Woodford Equity Income fund was suspended in June and it was announced last week that the fund would permanently close and that Woodford Investment Management would also shut down.
Investors with money in the Woodford Equity Income fund will get their first return of capital in January, after the first tranche of assets have been sold off. They will then receive any remaining money as and when the fund’s assets are sold.
The Woodford debacle means those who want to continue investing in UK stocks for income will need to find a new home for their cash.
Alternative UK equity income funds
But analysis by investment platform AJ Bell found that only four UK equity income funds have come in the top 10 for all three key metrics – capital return, income and total return – over the past decade:
The funds are: MI Chelverton UK Equity Income, Unicorn UK Income, Royal London UK Equity Income, and Franklin UK Equity Income.
Laura Suter, personal finance analyst at AJ Bell, said: “UK equity funds in general have been unloved since the Brexit referendum in 2016, with investors withdrawing more than £14bn during that time. In the past year alone almost £4bn has been taken out of UK equity funds by investors. However, UK equities have fallen in value and are now offering a decent yield for investors, with the FTSE 100 as a whole forecast to yield 4.8 per cent for 2019.
“Clearly Woodford has taught us that past performance is no guide to future returns, but it still serves as a useful tool to see how a fund has performed. This is particularly the case with income funds, as we can see how much the manager prioritises income payouts in their management of assets, and how they balance this with capital returns. It’s all well and good having sizeable income payouts, but you don’t want to see your capital fall as a result.”
The best past performers
By looking at the top funds for capital growth, income and total return over the past 10 years, and the funds that have delivered across all three, AJ Bell identified the consistent performers.
Investors don’t have a swathe of options, as just 42 funds in the sector have a 10-year track record and more than £250m in assets. Of those just four funds have managed to come in the top 10 at the same time for capital growth, income and total return.
“Income seekers could look to MI Chelverton UK Equity Income, which appears on all three top 10s but comes top for income. If you invested £10,000 a decade ago, the £627m fund has handed investors £8,491 in income alone. During that time it has also achieved capital growth of 97.3 per cent, meaning that same investor who had taken the income would have seen their initial £10,000 investment turn into £19,730,” said Suter.
“Those who don’t need the income now will be more focused on total return, where income is automatically reinvested back into the fund. The MI Chelverton UK Equity Income has also come top here, as its hefty income payout has pushed the total return higher, to 234.8 per cent over the past decade. A close second is the Unicorn UK Income fund, which has handed investors a 225.4 per cent total return over that period, turning the £10,000 initial investment into £32,540 today. It is important to note that both of these funds invest heavily in smaller companies and so potentially carry higher risk.
“Investors who want to receive an income but still want to see their initial investment grow as much as possible, should look at the capital return figures as well. The £770m Franklin UK Equity Income fund comes top for capital returns, with a 125.5 per cent return, which assumes someone had drawn off the income during that time.”